Pay deals well below inflation

New figures suggest that many employees are experiencing effective pay cuts because of the gap between wage rises and inflation.

A study carried out by Incomes Data Services, (IDS), a pay analysis company, revealed that, on average, pay rises have remained mired at around 2.5 per cent over recent months.

However, the Retail Prices Index rate of inflation, the traditional measure for gauging pay settlements, has now hit the 5.3 per cent mark.

In the first three months of the year, nearly two-thirds of pay agreements were banded between 2 per cent and 3 per cent.

Employees in the private services sector did best with average rises of 2.9 per cent; manufacturing saw increases of 2.5 per cent.

Although not included in the data, predicted April settlements in the private sector indicate higher levels of increases than those recorded in the first quarter of 2011. The median settlement in the private sector for April is provisionally 3 per cent, the IDS report said.

Ken Mulkearn, editor of the IDS survey, commented: "Our pay settlement figures show overall stability, with some evidence of modest upward pressures coming through from the initial data on April awards.

"The various pressures on pay are finely balanced, with higher inflation being offset to some extent by employers' concerns about the economic recovery and the impact of public sector job cuts on the labour market. It may also be that companies' retention of profits is acting as a brake on pay growth.

"This could be of concern to policy-makers, at least in so far as consumer spending - which appeared to weaken recently - relies on higher wages. Next month's data, for the three months to April, will be important in this respect."